Fundamentally-Weighted Index Definition

Learn the definition of fundamentally-weighted index and other ETF terminology from the etf.com glossary.

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Reviewed by: etf.com Staff
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Edited by: etf.com Staff

Learn more about Fundamentally-Weighted Index

In the context of ETFs, a fundamentally-weighted index is an index in which the constituent securities are weighted based on their fundamental characteristics rather than their market capitalization. This means that securities with stronger financial performance, such as higher earnings, book value, or sales, will have a greater impact on the index's performance than securities with weaker fundamentals. Fundamentally-weighted indexes are often considered to be more reflective of the intrinsic value of companies than market-cap-weighted indexes, which are based solely on the size of companies. However, fundamentally-weighted indexes can also be more volatile than market-cap-weighted indexes, as they are more sensitive to changes in the financial performance of individual companies.

Related Terms

Equal-Weighted Index, Market Capitalization

ETF Glossary is etf.com’s collection of key terms and definitions related to exchange-traded funds. ETFs are investment funds that are traded on stock exchanges, and they can encompass a wide range of asset classes, including stocks, bonds, commodities and more. Given the diverse range of ETFs and the complexity of financial markets, having a clear understanding of ETF-related terminology is instrumental for investors looking to make informed decisions, manage risks effectively and navigate the evolving landscape of ETF investments.